On December 18, 2009, Beijing No.1 Intermediate People’s Court (the “Court”) reached a decision in favor of defendant in China’s second “abusing dominant market position” case.
BACKGROUND
The Plaintiff, Tangshan Renren Information Service Company (“TRISC”) operates an online platform that brokers deals between pharmaceutical companies and distributors and consumers. The Defendant, Baidu, which is allegedly the largest Chinese search engine company is accused of artificially lowering TRISC’s ranking in Baidu search results in order to coerce TRISC into continuing to purchase bid ranking service from Baidu. It is alleged to have caused TRISC to lose traffic and revenue. TRISC brought the case to the Court under Paragraph 1 of Article 17 of Chinese Anti-Monopoly Law (“AML”), namely, the exclusive dealing provision that prohibits a firm with market dominance position from restricting a third party to dealing with itself or selected third parties exclusively without valid justification. TRISC petitioned the Court to grant an order to enjoin Baido from the conduct and asked for $163,000 in damage for lost revenues. Baidu defended itself by arguing that lowering TRISC’s ranking in its search result was a response to the “junk links” practice TRISC engaged in, i.e. TRISC created a robot to automatically post junk posts on websites and forums and sent out spam messages to elevate its ranking in Baidu’s search results. According to Baidu, it adopts “anti-junk links” policy and made it sufficiently clear to the outside world by putting it on its website.
After the trial, the Court ruled in favor of Baidu, on the ground that (1) the evidence advanced by TRISC is insufficient to establish Baidu has market dominance position in relevant market; (2) even if Baidu has market dominance position, Baidu has valid justification in blocking TRISC from gaining access to potential customers, because TRISC sent out junk links on a massive scale, thus violating Baidu’s policy that prohibits the practice disruptive of online integrity; (3) TRISC failed to prove causation link between loss of revenue and Baidu’s lowering its search result ranking.
HIGHLIGHTS OF THE DECISION
1. Market Definition
For the first time in cases of “Abusing Dominant Market Position”, Chinese court staked out its position in defining relevant market. The Court recognized that market definition is the springboard for abusing market position analysis. In this dispute, relevant market is a much contested issue. TRISC claimed that the product market is search engine market. However, Baidu argued that there is no such product market in the dispute. According to Baidu, search engine market has two subcategory markets, natural search market and bidding search market. Product markets within the meaning of antitrust law necessarily refer to those in which products and services are traded for profit. Inasmuch as the natural search service is offered for free and that dispute in question centered around natural search service only, no product market exists.
The Court dismissed Baidu’s argument. Though it didn’t spell out its detailed analysis in the opinion, the Court suggested that in search engine market, natural search service is so closely linked with bid search service that any attempt to separate them is a denial of business reality. To be specific, as free as natural search service is, it is offered as a vehicle to attract firms to bid for their rankings in bid search market, which is a for-profit market. Stripped of each other, the two sub-markets couldn’t have existed at all.
Noteworthy is that the Court defined the market as search engine market. It implies that the Court didn’t think other media market is relevant for its market definition analysis, such as newspaper, TV or even gateway website. The Court attempted to sit in the position of customers and survey all media ad markets by reference to such parameters as characteristics, applications, substitutability and etc. How the Court defined the product market indicates that Chinese courts have gained sophisticated knowledge and know-how in handling complex market definition analysis.
2. Burden of Proof
In its opinion, the Court expressly puts the burden of proof on TRISC to substantiate its claim that Baidu has dominant market position in the relevant market. As it turns out, failure to discharge the burden is one of the leading causes that sink TRISC’s antitrust challenge against Baidu. The issue is important, because viewed in context, there are a lot of speculations going on in the legal community as to the burden of proof in antitrust civil litigation. One theory argues that the burden should be shifted to the defendant alleged to have abused its market position, because otherwise it constitutes an insurmountable task for ordinary citizens and companies to meet the burden, damping the prospect of active private enforcement of AML. The theory has met a lot of oppositions. It has been argued that private enforcement of AML is no exception to the general rule that plaintiff carries the burden of proof to establish its claim. Otherwise, it will engender the danger of frivolous litigations aimed solely to disrupt normal competitive conducts of competitors. Burden of proof in civil antitrust litigation has been included in the Supreme People’s Court’s ongoing effort to promulgate legal interpretation specifically designed for antitrust civil litigation. The Court’s holding TRISC’s accountable for its failure to meet the burden of proof foretells that the legal interpretation to be introduced by the Supreme People’s Court later on will not depart from the general rule.